Financial tax could harm single market and jobs, critics argue

European Commission plans for a financial- transaction tax – scheduled to be unveiled on 14 February – are generating anxiety in some member states about possible damage to the European Union’s single market.

Algirdas Semeta, the European commissioner for taxation, is to present his revised proposal for a tax in a limited number of EU member states, but some of those not taking part say that they are worried they will still be affected.

A previous Commission proposal, published in September 2011, failed because a significant number of EU member states objected to the plan.

When finance ministers met in Brussels last month (22 January), they asked the Commission to make a proposal under the ‘enhanced co-operation’ procedure, which allows legislation to be adopted by a minimum of nine countries.

Eleven have so far indicated that they want to participate in the system. More could join later. However, significant obstacles remain to any such new law. Not the least among these are objections from countries that do not want to take part. Their finance ministers will still take part in discussions on the shape of the transaction tax, although they will not have a final vote.

The Czech Republic, Luxembourg, Malta and the UK have indicated serious unease at the potential impact of the tax on the single market – so much so that they would not have supported enhanced co-operation if the issue had come to a vote, they say. They are concerned that they would be affected because, under the Commission’s plans, tax will be imposed on a transaction if either the seller or the buyer is based in one of the participating countries.

Luxembourg’s government has been the most vocal critic of the plan. It opposes the use of enhanced co-operation “as a tool to impose on financial institutions established in non-participating member states a tax on which an agreement could not be reached on the level of the 27 member states”.

A statement added: “Luxembourg reserves the right to seek all legal remedies available in case it considers that the future tax does not respect the relevant treaty provisions on enhanced co-operation or is incompatible with the good functioning of the internal market.”

Luxembourg’s fear is shared by some business groups. AmCham EU, the American Chamber of Commerce to the EU, said that it opposed the tax on the grounds that it would “create uncertainty and jeopardise economic recovery”.

“It is difficult to see how non-participating member states can be assured they will be protected from any negative externalities of the tax,” said Will Morris, the chairman of AmCham EU’s EU tax committee.

The biggest political groups in the European Parliament support such a tax and have called on finance ministers to reach a deal swiftly.

Finance ministers also need to discuss how the proceeds from the tax would be used. The Commission wants the revenue to contribute to the EU’s general budget.

Some countries want to retain the money raised for themselves, while non-governmental organisations have urged investment in development projects.

The proposal will suggest a 0.1% levy on stocks and bonds transactions and a 0.01% tax on transactions of derivatives.